Taking Control of Your Cash Flow
Richmond said the oil heat industry average for receivables is 37 days, a number that can be corrected downward with some very basic steps. The first thing is to make it easy for customers to pay. He favors the Electronic Funds Transfer (EFT) method where customers can pay their bills on a monthly basis via transferring funds from a bank account or credit card.
He noted three advantages to EFT:
1. Controls when contractor receives the money, which is when it is deposited into a business account;
2. Eliminates manual processing associated with processing payments;
3. Provides customers with the convenience, ease, and efficiency of doing business with a contractor.
“The EFT method gets your money in-house very quickly,” Richmond said. “It is much cheaper than accepting credit card payments, too. In a perfect world, 100 percent of your income would come from EFT and at a minimal cost.”
He said that another good way to keep a healthy cash flow is to accept credit card payments online, too. Major credit card companies like Visa and MasterCard have allowed contractors to pay reduced fees for credit card transactions, partly because of the declining number of contractors who participate in credit card transactions.
Accepting credit card payments or EFTs shares one common advantage: less human handling. “The idea is to streamline a system so much as to eliminate a lot of labor or human intervention,” said Richmond, who still favors EFT over credit cards. “Although you can’t impose a surcharge on customers paying with a credit card, you can get around this by offering a discount to customers who pay by cash [EFT].
“With a streamlined process you can reposition your labor into other areas and ultimately reduce your number of labor hours per week.”
Richmond also advised contractors to look at the interest rates charged by various credit card companies on their usage fees. He noted that MasterCard has the lowest interest rate, followed by Visa and then American Express. “Don’t forget about accepting debit cards - they are very good, too,” he said.
Richmond recommended a few ideas for contractors to take back to their businesses right away.
• Join a local, regional, or state organization that can help with group discounts on credit card processing;
• Work with cash flow experts who know the HVAC industry, not generalists;
• Chose a software partner who is committed to your success.
For more information, visit www.cocardprocessing.com.
Publication Date: 06/11/2007